Member Paul White Speaks: Take that Downturn and Flip it Upside-Down

The Challenge:

As the stock market and economy teetered in the first few months of the year, group discussions centered on how best to prepare for a softening of the economy. A case study was presented by the CEO of a company in a strong market position who has specifically developed and implemented their business plan to generate terrific results during good times, and do well during tough times.

If you were in this situation, what would you do?

If I were in your shoes, I’d capitalize on the excellent groundwork you’ve laid to use the downturn to strengthen positions with existing customers, win new customers, gain leverage with suppliers, and execute an expansion plan.

You have done an excellent job preparing for the downturn. You are debt-free, have a diversified customer base and a lean, effective staff. Moreover, half your revenue is coming from ongoing maintenance and support agreements rather than new product sales. The cherry on top is your exclusive right to sell leading products in your geographical areas. If the economy softens, you can clearly leverage your strong position and take a leap ahead of the competition.

If I could offer some advice to you, I would advocate for a four-part strategy. First, strengthen your position with existing customers while establishing higher margin future business. For example, you could proactively help your customers reduce their current costs and increase your margins by providing long-term leasing in place of product purchases. Second, win new customers with similar cost-reduction strategies, leveraging your company’s financial strength to win market share from competitors who lack the ability to respond. Third, leverage your strength vis-à-vis your suppliers; negotiate better pricing, more favorable terms and possibly more territory.  Which leads to my final suggestion, develop and execute an expansion plan. For example, you could identify competitors in desirable market segments or geographic areas who are financially weak, but have good customers and profitable distribution rights. From there, you could explore the potential with product vendors of taking over these weaker competitors’ exclusive distribution rights. Or, even consider buying the competitor outright. All in all, your company is well poised to use the downturn to increase customer loyalty, market share and future profitability.